Annuity Payment options against Pension Policy

Please guide me as to how to decide about selection of proper option from the following options offered by Pension Plan :

1. annuity as long as one annuitant lives

2. annuity guaranteed for 5, 10, 15 or 20 years and life thereafter

3. annuity with return of purchase price to nominee

4. annuity payable for life increasing at a simple rate of x%

 - Vinayak Bapat

Dear Vinayak, each of the option listed by you has it's own pros & cons.

1. Annuity for life - In this case the annuity amount is highest but the annuity stops the moment, annuitant dies. In this option, If there is a surviving spouse, S/he 'll not get any more annuity from the annuity provider. This Option is beneficial to the persons, where no spouse is there to survive or extra provisions are already there for spouse.

2. Annuity Gtd. for a certain period - In this option, the Annuity is provided for a certain period no matter, annuitant is alive or not during the full period. In case of premature death of annuitant, this option 'll provide annuity till the gtd. period is over. If the annuitant survives the gtd. period, the annuity 'll continue till the death of annuitant & 'll stop after her/his demise. This option is beneficial again for persons, where there is a surviving spouse & there is a history of early death in the family.

3. Annuity increasing with a simple rate of 3% - This type of annuity 'll provide a small cushion towards inflation in the later part of life. The amount of annuity is lower here than the prev. 2 discussed. Here again the annuity stops after the death of primary annuitant.

4. Annuity with return of purchase price - Under this type, annuity is paid first to annuitant till life than to spouse till life & after that the purchase price is returned to the nominees of the annuitant. The payment in this type of annuity is lowest. This is suitable to the persons who wants to leave a fortune for their heirs after their demise.

Thanks

Ashal

Set off of LTCL from Shares against LTCG of Debt Funds

Six Tata Steel preference shares (FV Rs 100 each x 6 = Rs 600) were converted into one equity shares on 01 Sep 2009 by Tata Steel @ Rs. 417.10 (Equity Share closing price on 01 Sep 2009). Earlier the preference shares were alloted on 22 Jan 2008. Thus there is long term capital loss of Rs. Rs 600 - 417.10 = 182.90. Since this was done off market, no STT was paid.

Is it right to consider this loss for offsetting against LT gain from Debt Mutual Funds ( where no STT was paid)?

- Vinayak Bapat

Dear Vinayak, As per the given info, you can set off your LTCL from conversion of Pref. shares against LTCG from Debt fund.

Thanks

Ashal

To 'Default' or 'Not To Default'

Dear friends, here is an interesting article on the subject of  Govt. debt. Although it's not directly related to us, as the subject matter is the US Govt. but in a sense it's applicable to any govt. in the world.

So read & enjoy.

http://johntreed.com/default.html

Thanks

Ashal 

Should I redeem my MFs before DTC

Sir,
In DTC,LTCG is likely to be taxable,may be @5% or 10%.I have investments in funds like R.Growth,H Top200,D Top100etc for last, say about five years.Should I redeem & then reinvest to avoid tax.Should I switch from R.Growth to RSF Equity?Kindly reply in detail.Thanks,urs sincerely

Lcbansal

Dear Dr. Lal, First of all. Plz. note these are mere proposals not the act as of now for DTC. The final picture may be different from what we are seeing today.

Regarding your query for redemption - Sample this -

Say you have total basic investment of 5L Rs. as on date where the with profit value is say 8L Rs. It means 3L Rs. is your profit. Now if you redeem these 8L Rs. in full & reinvest the same in same funds. your holding period 'll be counted from the reinvestment date. So in case in future, just after implementation of DTC, you require money due to any reason, the gains if any 'll be STCG & these STCG 'll be taxable at your marginal slab rate. Now If we consider that you are going to hold these units for a long term & 'll redeem after 4-5 more years in DTC, the LTCG 'll be discounted based upon your holding period. In the example given in the new proposals, it seems, higher the holding period, higher 'll be the discount for calculation of LTCG. 

Now interestingly If you don't take any action, the holding period is already eligible for LTCG & as the period is already more than 5Y (by the time, DTC is implemented), the resultant Tax liability 'll be very low. As now after 8-10 years (5Y current holding + 3-5 year more in DTC), your total holding period 'll invite a high %age discount & thus lower tax outgo.

One more Question I want to ask - Due to these DTC proposals, 'll you stop investing from now onwards? In any case, the future is EET. 

Your query is similar to public behavior - Fill the fuel tank of vehicle just b4 the hike in fuel prices. "ll this tank fill last for life long? NO. In any case we 'll continue to use now so called high priced fuel. Same is here in your query.

Plz. don't worry for now & future. Keep Investing. Yes redemption due to under performance should always be done.

Bye Bye & happy investing.

Thanks

Ashal

Revised ZProposals of Direct Tax code

Dear Friends, here is a quick view of the new proposals of Direct Tax code.

1. PF, PPF, GPF, EPF, NPS & Annuity Plans as well as proceeds from Term plans (Pure Life insurance) 'll be Tax free as per E - E - E. So no Tax at withdraw from these instruments.

2. Home loan Interest benefit on 1.5L Rs. for self occupied property, is retained.

3. The list of permitted savings intermediaries now includes most of the current saving instruments lile - apart from the instruments listed in point 1 above, NSC, ULIPs & Traditional Plans,  ELSS, Bnak Tax saver FDs, Bonds (Possibly Infrastruture bonds)  etc.

4. Long Term capital Gains from shares & Eq. MFs 'll become taxable.

5. No clarity as of now for the earlier proposed Tax slab rates.

This Revised Discussion Paper is available on the following websites:
finmin.nic.in and incometaxindia.gov.in
Responses to the Revised Discussion Paper should be sent online through the link provided at these websites or at the following e-mail address: directtaxescode-rev@nic.in. Responses are solicited upto 30th June, 2010.

Thanks

Ashal